Long Beach to float $6 million borrowing measure

The City Council will hold a special meeting on Tuesday, where it will be asked to approve a $6 million borrowing measure as city officials contend with a $10.2 million deficit and work to avoid a further credit-rating downgrade by Moody’s Investors Service.

City officials maintain that the move to issue $6 million in revenue anticipation notes — a short-term debt security issued on the premise that anticipated revenues will be sufficient to meet the city’s repayment obligation — would allow the city to maintain “essential” services, avoid laying off 20 to 30 percent of its workers and would serve as a bridge to allow officials to balance the budget by the end of fiscal 2011-12 on June 30.

The borrowing measure comes just four months after the previous administration borrowed $4.5 million amid a cash-flow shortfall to make payroll in December and to meet its contractually-obligated termination payouts to several outgoing police officials.

That led Moody’s Investors Service to downgrade the city’s credit rating five levels — from A1 to Baa3, a step above junk bond status — and forced the current administration to recently declare a fiscal crisis.

Additionally, the city's general fund has been declining for the past four years, from $8 million in fiscal 2008 to an estimated negative $7.4 million in the current fiscal year. The city's water, sewer and risk retention funds are all expected to end the year with negative fund balances, according to city officials, who insist that a failure to address the financial problems will increase the budget deficit to nearly 25 percent by the end of fiscal 2015.

The estimated deficit for the current fiscal year represents more than 12.4 percent of the city’s $83.6 million budget. The deficit includes $1.5 million that the previous administration used after it issued a budget note in November to pay a number of outgoing police officials. Though City Manager Jack Schnirman said that the city does not have to begin paying off the note until the 2012-13 fiscal year, the city still must close the remaining $8.75 million gap before the budget is approved in April.

On Friday, city officials announced that Moody’s had issued an interim review of the city’s finances, which remains unchanged and under a negative watch that could lead to a further downgrade. According to the city, however, Moody’s lauded the new administration for its declaration of a fiscal crisis in February and for slowing expenditure growth by saving $1.2 million through reduced overtime costs, management salaries and amortized state pension payments.

The city stated on its website that as a result, Long Beach was able to avoid another rating downgrade at this time. Moody’s affirmation of Long Beach's current rating allows the city to access capital markets, with the agency citing the importance of continuing to use cash-flow borrowing as a bridge between anticipated, incoming revenues.

According to a statement on the city’s website announcing the proposed resolution, the city currently has $631,419 in debt service payments due through the end of April that will be paid with approximately $5 million cash on hand.

The statement attributed to Moody’s reads, “However, cash continues to decline and the city expects to issue additional short-term notes in April to raise cash for ongoing liquidity needs. Absent the additional cash-flow borrowing in April, the city may not have enough liquidity to make future debt service payments in June of 2012.”

Members of the City Council and administration said earlier this week that they were looking to avoid layoffs and a tax increase to help eliminate the deficit. After the city announced its deficit projection for the current fiscal year, Schnirman said that the administration intends to work with union leaders and department heads to find additional savings to close the gap. He also said that the administration was considering looking into short-term borrowing measures — such as a revenue anticipation note — for cash-flow purposes, though he said that it was not a long-term solution.

With Moody's affirmation of the city’s current credit-rating, along with guidelines that the agency shared with the city to help it emerge from a under negative watch, the city is looking to go to market for $6 million in revenue anticipation notes.